First published on Ireland After Nama
Commentary on the current housing crisis in Ireland has placed significant emphasis on what are often perceived as peculiarly Irish problems of clientelism, cronyism, localism and poor regulation leading to the overextension and subsequent collapse of the property market and a massive oversupply of housing. Comparison with the parallel experience of overinflated housing markets and subsequent collapse in Spain may in this context prove insightful.
The bullet-points summary below is adapted from an article in the International Journal of Urban and Regional Research published in December 2010– Garcia, M. (2010) The Breakdown of the Spanish Urban Growth Model: Social and Territorial Effects of the Global Crisis.
- Europeanisation and globalisation led to an average yearly growth rate of GDP of 3.5% between 1994 and 2007;
- This period of economic boom was accompanied by a high rate of in-migration, with foreign migrants concentrated in Madrid and along the Mediterranean coast, where the labour market was expanding;
- EU funds supported the modernisation of transportation infrastructure, improving accessibility across the country and reducing disparities between richer and poorer regions;
- Population increase due to a 1970s housing boom, coupled with high net in-migration, trends of declining average household size and increased disposable incomes, contributed to a high demand for housing, particularly owner-occupied housing in suburban locations;
- The housing boom was fuelled by the unprecedented availability of cheap credit from international markets;
- Optimism combined with fear of future price increases encouraged housing acquisition and led to a rapid rise in the level of private debt;
- The rate of housing development exceeded the rate of population growth in many Spanish cities throughout the 2001-2008 period;
- The housing boom was facilitated by government incentives for both developers and house buyers;
- Second homes and speculative investments accounted for a very significant proportion of the housing market;
- A segmented housing market developed strengthening social inequalities with problems of affordability for young aspirant home owners in particular;
- Local and regional administrations actively made land available for development, irrespective of spatial plans, with a view to increasing the local tax base;
- The level of oversupply in 2010 amounted to approximately 1 million housing units, 600,000 of which are newly constructed;
- Levels of unemployment in the construction sector are around 30%;
While there are striking similarities, there are key differences in the response to the crisis by government and the banking sector. In particular, Spanish banks have taken an active role in the property market, selling houses at discounted prices and developed innovative mechanisms to restructure the mortgage debt of households whose employment circumstances have deteriorated.
It would appear that there is significant potential for cross-national learning between Ireland and Spain, both in terms of disentangling local, European and global causal factors (in as much as this is possible or useful) and in terms of coming up with solutions and ways forward. We cannot fully understand post-crisis Ireland without an appreciation of similar experiences elsewhere.